Mistake: Dealing with your investments piecemeal.
Method: Convince clients to consolidate assets.
Clients can have assets all over the place — multiple RRSPs with different institutions, inherited stocks, mutual funds bought from an advisor who long ago left the business, and a smattering of funds in an online brokerage account.
If you only see one part of the picture, your advice will also be incomplete. Christy DeCosimo, CFA, of Toron Investment Management in Toronto, likens it to visiting a cardiologist with your ultrasound results, but holding back the blood work and still expecting a proper diagnosis and treatment. “Everything is connected,” she says. “To do a proper job for the client, we have to see all the pieces.”
By consolidating their assets, clients will get a proper net worth statement and better advice. There are five reasons why:
1. Reduce the risk
Some clients mistakenly believe holding accounts with several institutions or advisors will help diversify their portfolios and therefore cut risk. Maryanne Hardman, CIM, FCSI, EPC, an investment advisor with CIBC Wood Gundy in Halifax, says this scattered approach will likely result in under- or over-diversification. To demonstrate this, show how two similarly mandated mutual funds often hold a lot of the same. Then, explain how holding both funds, which perform similarly, actually increases — instead of reducing — client risk.
2. See the forest
By spreading their wealth, clients can end up with guidance that’s conflicting or narrow, says Patti Shannon, CFA, a portfolio manager at Leith Wheeler Investment Counsel in Calgary. Using one advisor with a complete perspective can ensure a client has the right investments for her level of risk and is properly diversified by asset class, geography and sector.
3. Do better tax planning
Without a big-picture view, it’s difficult for an advisor to find tax savings. “After setting allocations, you want to place the assets most tax-efficiently,” says Hardman. For example, an advisor who controls all assets can ensure bonds are inside registered accounts and high-dividend funds are outside. Such basics can be lost when accounts are spread out and no single person is in charge.
4. Save time and money
When clients have accounts at several institutions, they spend more time managing the flood of paperwork and going to multiple meetings. Show how much time they’ll save by only seeing you, and offer to handle the paperwork and fees for all asset transfers. Also check if their combined assets put them in the next tier of your firm’s fee structure. If so, they’ll save even more money.
5. Get a fresh look
Although there are many reasons to centralize their financial affairs, clients might not do so immediately — it can be unpleasant to sever other relationships. To show why it’s worth the trouble, DeCosimo offers to do a portfolio analysis that includes the funds held elsewhere. “Some people think the advisor just wants to secure all their assets,” she says. “That’s not my primary concern. I’m trying to [analyze] their whole piece because that’s when I can do the best job.”